What to do when your mortgage gets resold

How to avoid mistakes and protect your home

When mortgages are sold from one bank to another servicer, homeowners often find they need to correct errors in their account, but advocates say there are steps consumers can take to protect themselves—and their homes.

Last week, Steve Antonakes, deputy director of the Consumer Financial Protection Bureau, said he was “deeply disappointed” by the lack of progress the mortgage servicing industry has made in treating customers. This despite recent settlements with officials over the mishandling of home loans.

In December, the CFPB reached a $2.1 billion settlement with mortgage servicer Ocwen Financial Corp.
OCN, +8.31%
over allegations that it charged unauthorized fees and mistreated homeowners facing foreclosure. In 2012, the five largest mortgage servicers reached a $25 billion foreclosure-abuse settlement with state attorneys general and federal agencies that imposed new standards for industry practices. In most cases, servicers are hired by the investor or bank to manage the loan payments.

Even though the number of foreclosures has fallen since the property market crash in 2008, non-performing home loans are still being sold from one servicer to another. “The problems of resolving the remaining mountain of foreclosures are not going away and with consolidation of servicers there are new issues of capacity,” says Susan Wachter, professor of real estate and finance at The Wharton School of the University of Pennsylvania. In response, the CFPB provides sample letters that consumers can use to find solutions to problems with their mortgage servicers—like requesting a servicer correct errors—and a fact sheet http://1.usa.gov/1cWfack of rules protecting consumers. For instance, most servicers cannot initiate a foreclosure until a borrower is more than 120 days delinquent.

When writing to get a problem fixed, it’s important to always establish the name, direct phone number and email/mailing address of a new point-of-contact and their superior, says Keith Gumbinger, vice president of HSH.com, the Riverdale, N.J.-based mortgage-information company. In each email/letter, he recommends always expressing the desired outcome clearly for whoever picks up the file: For example: “I want to keep my home” or “I want to short-sell it.” Prepare in advance for a change of personnel: The mortgage servicer will likely “record calls for quality control purposes,” so the consumer should do the same and follow up every conversation with letters/emails, he says. Google Voice and Call Recording by NoNotes.com are two free apps that record phone calls.

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Borrowers who’ve experienced several failed requests for documents should immediately contact the state Attorney General, the Office of the Banking Commissioner or CFPB, says Elyse Cherry, CEO of Boston Community Capital, a community development financial institution. Once a complaint is forwarded by the CFPB, the servicer has 15 days to respond. (This CFPB online tool helps consumers find a housing counseling agency in their area.) “There is a Kafkaesque reality to dealing with some mortgage servicers,” Cherry says. “It’s very difficult to stay with a real human being who knows your case intimately and takes you through the process from beginning to end.”

But there could also be an upside to non-performing loans being sold to servicers. “Servicers often buy the loan at a steep discount, so there could be more wiggle room for the borrower to modify the loan,” says Daren Blomquist, vice president at real estate data firm RealtyTrac. From Sept. 1, 2010 to Dec. 19, 2013, nearly 73,000 non-performing single family loans were sold at auction by the Federal Housing Administration to private companies. On Dec. 17, 2013, 13,661 non-performing loans were sold at an average discount of 51.6%. These loans are typically sold in pools to investors and—in theory—provide one last opportunity for these families to retain their homes, he says. “Many servicers are not in the business of foreclosure,” Blomquist adds.

One critical consideration: The speed—and transparency—of any foreclosure will ultimately depend on whether the homeowner lives in a judicial or non-judicial state, says Ross Mackesey, a broker and manager at Long & Foster real estate in Baltimore County, Md. “Maryland is a judiciary state,” he says. “The courts are involved and there’s mediation.” There are 23 “judicial states” where the courts oversee the foreclosure process and, therefore, Foreclosures in those states can take longer than those in non-judicial states where a lender might only notify the owners that they are in default before putting the home up for auction. The servicer or lender’s legal contact will likely be cited in any public court filing.”

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